Sabra Health Care REIT (Nasdaq: SBRA) is increasingly exploring opportunities in the behavioral health space, according to CEO Rick Matros. Traditionally a real estate investment trust specializing in senior housing, skilled nursing, and transitional care facilities, Sabra has begun to expand its portfolio to include behavioral health properties. With a current portfolio of 429 properties across the United States and Canada, Sabra’s entrance into this sector marks a strategic diversification aimed at tapping into the growing demand for mental health and addiction treatment services.
Early Moves into Behavioral Health
Sabra made its first foray into behavioral health in the third quarter of 2019 with the acquisition of two addiction treatment facilities from Landmark Recovery for $14.8 million. These facilities were then leased back to Landmark, which planned to expand operations. Later, in the fourth quarter, Sabra completed a second deal, purchasing a shuttered HealthSouth long-term acute care facility in Monroeville, Pennsylvania, for $3.75 million. This facility is now set for renovation and redevelopment, and Recovery Centers of America will operate it under a long-term lease.
While these investments represent a small portion of Sabra’s nearly $1 billion acquisition pipeline, they reflect the company’s growing commitment to behavioral health. Matros emphasized that Sabra is particularly interested in “a little bit more institutional” facilities rather than luxury or boutique retreats, focusing on middle-class patients dealing with issues such as opioid addiction and alcoholism.
Strategic Approach to Behavioral Investments
Matros explained that Sabra’s interest in behavioral health stems from both personal experience and recognition of the sector’s potential. With previous operational experience in behavioral health and a personal connection through his wife, who is a psychologist, Matros brings both expertise and insight to the REIT’s expansion efforts.
According to Matros, the addiction treatment space is relatively young, and behavioral health facilities face challenges due to a lack of established operators with long-term track records and strong balance sheets. Despite these challenges, Sabra remains committed to growth in the space, identifying operators with the right expertise and program models as the key factor in investment decisions.
The CEO stressed that their investment philosophy is operator-focused. Sabra will not pursue deals based solely on property location or potential asset aggregation. Instead, the REIT prioritizes operators with proven capabilities, a strong mission, and a commitment to delivering high-quality care.
Market Dynamics and Policy Support
Behavioral health has become an increasingly attractive investment sector due to shifts in public policy and growing awareness of mental health issues. Insurers are beginning to recognize the value of behavioral health services, and reimbursement rates are improving. Matros highlighted that as society continues to reduce the stigma surrounding mental health and substance use disorders, demand for these services is likely to increase, making the sector more viable for investment.
Types of Behavioral Health Opportunities
Sabra’s approach encompasses a wide range of behavioral health services, including mental health, addiction treatment, autism, eating disorders, and intellectual and developmental disabilities (IDD). While some operators offer specialized services within their facilities, the REIT’s focus on addiction treatment remains distinct and targeted.
In addition to traditional acquisitions, Sabra is exploring opportunities to convert certain senior housing or skilled nursing facilities into behavioral health facilities. While these conversions are not expected to be a major growth driver, they provide incremental opportunities for expansion in the sector.
Operator Selection and Due Diligence
A crucial aspect of Sabra’s strategy is the thorough vetting of potential operators. Before investing, the company evaluates operational models, programming, market demand, and overall management capabilities. Matros emphasized that the REIT spends more time understanding operators and their approaches in behavioral health than in any other segment, ensuring that partnerships align with Sabra’s standards for quality and mission alignment.
The focus on strong operational partners ensures that Sabra’s investments support sustainable growth and reliable service delivery. Matros underscored that the REIT will not proceed with a deal if the operator does not meet these criteria, regardless of the property’s location or potential market appeal.
Challenges and Considerations
While the behavioral health sector offers significant growth potential, Matros acknowledged that it remains a complex and relatively new market. Unlike storage or even senior housing, behavioral health operations involve intricate regulatory requirements, specialized care needs, and a variety of reimbursement mechanisms. These complexities have historically deterred other REITs from entering the space.
However, Sabra’s experience in healthcare-related real estate and its strategic approach to operator selection position the company to navigate these challenges successfully. The REIT aims to build a reputation as a knowledgeable and reliable partner in the behavioral health industry, balancing financial returns with mission-driven objectives.
Growth Potential and Long-Term Goals
Sabra’s investments in behavioral health are currently a small part of its overall acquisition pipeline, but the company anticipates steady growth in the sector. Matros indicated that while behavioral health will not immediately become a major growth engine, it is expected to expand incrementally as new opportunities arise. Over time, the REIT aims to segment its behavioral health portfolio separately from other asset classes, reflecting its growing importance and potential for dependable growth.
Matros also highlighted the importance of flexibility in pursuing opportunities. Rather than setting strict targets for facility type, operator, or location, Sabra maintains an opportunistic approach, evaluating each potential investment on its merits. This strategy allows the company to adapt to market conditions, regulatory changes, and evolving patient needs.
The Future of Behavioral Health for Sabra
Looking ahead, Sabra plans to continue exploring both traditional acquisitions and partnerships with established operators. The company’s focus remains on institutional facilities with sustainable operations, reliable reimbursement, and a clear mission to deliver high-quality care.
Matros expressed optimism about the long-term viability of behavioral health as a REIT investment, noting that the sector’s growth is supported by increasing demand, policy changes, and broader societal recognition of mental health and addiction issues. While the pace of growth may be gradual, Sabra is committed to building a meaningful presence in the space and developing partnerships that can scale over time.
Commitment to Quality and Mission
Ultimately, Sabra’s expansion into behavioral health reflects a dual commitment: to pursue strategic investments that provide financial returns, and to support operators delivering essential services to individuals in need. By prioritizing institutional facilities and strong operators, the REIT aims to balance profitability with social impact.
Through careful selection, due diligence, and a willingness to invest in growth-oriented operators, Sabra seeks to establish itself as a trusted partner in the behavioral health industry. As Matros noted, the goal is not simply to aggregate properties but to create a portfolio that demonstrates both dependable growth and meaningful contributions to patient care.
Conclusion
Sabra Health Care REIT’s interest in behavioral health represents a thoughtful and strategic approach to diversification within the healthcare real estate sector. By targeting institutional addiction and behavioral facilities, prioritizing strong operators, and leveraging expertise in healthcare properties, Sabra is positioning itself to capitalize on the growing demand for behavioral health services. While the sector is still emerging and growth may be slow, the company’s commitment to quality, mission alignment, and long-term expansion indicates that behavioral health will become an increasingly important component of Sabra’s portfolio.
As the REIT continues to evaluate new opportunities and expand its footprint in the behavioral health space, its strategic approach and operator-focused philosophy are likely to set it apart from peers, offering both financial returns and positive societal impact.
Looking Ahead
Sabra’s future in behavioral health will focus on institutional opportunities, strategic operator partnerships, and incremental growth, aiming to build a sustainable, mission-driven portfolio in the evolving mental health and addiction treatment sector.
